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OTTAWA — Millions of Canadians woke up Friday with some disheartening news about their work lives and financial future: they may now need to work two years longer than initially planned.

The Conservative government's budget announcement on Thursday of a plan to gradually increase the eligibility age for Old Age Security and the Guaranteed Income Supplement to 67 from 65 will have profound impacts on the lives of Canadians across the country.

Finance Minister Jim Flaherty and the Harper government maintain the changes are necessary to ensure the financial sustainability of the OAS program for future generations, while the parliamentary budget officer and some pension experts insist the program is on sound financial footing.

The changes are also sparking questions over why the government isn't clawing back more OAS benefits from higher-income seniors to help the lower- and middle-income retirees who are more dependent on it.

Here's a bit of an explanation on OAS and GIS and what the changes mean to Canadians:

Question: What is Old Age Security and the Guaranteed Income Supplement?

Answer: OAS is part of the bedrock of the country's public pension system and is funded entirely by government revenues. It's available to any Canadian citizen or permanent resident who has lived in the county for at least 10 years, although you're eligible for more dollars the longer you have lived in Canada. People currently qualify at age 65. The Guaranteed Income Supplement provides a monthly non-taxable benefit to low-income Old Age Security recipients living in Canada.

Q: Who is affected?

A: Beginning April 1, 2023, the age of eligibility for OAS and GIS will gradually change to 67 from 65. Canadians 54 years or older as of March 31, 2012, will not be affected. People born between April 1, 1958, and Jan. 31, 1962, will become eligible to receive OAS benefits between the ages of 65 and 67, depending on their actual birth date. People born on or after Feb. 1, 1962, won't be eligible for OAS until age 67.

Q: What's the problem?

A: Baby boomers are beginning to retire, leaving fewer Canadians in the workforce to pay federal taxes. The government says that unless changes are made, OAS will soar in size and cost — from 4.7 million recipients (costing $36.5 billion) in 2010 to 9.3 million people (costing $108 billion) in 2030.

Q: What are the OAS and GIS benefits?

A: The average Old Age Security payout is $510.21 a month, with the maximum payment being $540.12 a month for seniors with less than $69,562 in annual net income. The payment is gradually clawed back for those above that income threshold, until it disappears for those earning more than $112,772. The average GIS monthly payment is $492.26 while the maximum is $732.36. It is paid to seniors who make less than $16,368.

Q: How many seniors are affected by that OAS clawback?

A: The Caledon Institute of Social Policy calculated in a recent research paper that only six per cent of seniors are affected by the OAS clawback and just 2.3 per cent receive no Old Age Security. The institute argued that lowering the clawback on OAS would save more cash for the federal government, without affecting the majority of seniors who have low or average incomes.

"One can have a debate about when the clawback should start to happen and how much it ought to be. Those are judgment calls," finance minister Flaherty told reporters Friday following a speech to business leaders.

"We have a sharply progressive income tax system in Canada . . . some Canadians might think it's too sharply progressive or not sharply progressive enough, and similarly with the Old Age Security benefit."

Q: What's the incentive for working longer and deferring OAS payments?

A: People can voluntarily defer receiving their OAS benefits for up to five years, starting July 1, 2013, and will be rewarded with a higher, actuarially adjusted pension. For example, Canadians who defer the OAS pension for one year (to age 66 instead of 65) would receive about $6,948 annually (in 2012 dollars) instead of $6,481. Someone who defers the OAS benefit for the maximum five years would receive $8,814 instead of $6,481.

Bill Robson, president of the C.D. Howe Institute, said in a research paper earlier this month that rewarding OAS and GIS recipients for delaying their benefits — without raising the universal eligibility age — could contain federal costs in a way that is "less stressful" to recipients, while being "less discouraging to work and saving than intensifying clawbacks."

Q. Will the announced changes affect the Canada Pension Plan?

A. No. The CPP is a separate fund, available to Canadians who were in the workplace. It is actuarially sound and won't be touched.

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